Flurry of rate decisions in EMEA this week

In EMEA, this week has a flurry of rate decisions. The most interesting will be the Turkey MPC meeting on Thursday. Although a close call, the CBT is expected to remain on hold this week. The CBT announced its roadmap for the simplification of the policy framework in August, and has already started implementing some measures to provide FX liquidity and support financial stability. However, with the domestic environment deteriorating and less risk appetite for EMs, gradual simplification of monetary policy has become more complicated. The reactive stance (or higher tolerance) of Turkey's central bank against TRY depreciation suggests risks of delay/interruption to the simplification, particularly given the unknowns at home (i.e., weaker sponsorship of CBT Governor Basci, election uncertainty, the fragile growth outlook). 

On the other hand, a potential hike to the 1-week repo rate (7.5%) at the September MPC is a possibility, given the tighter policy stance implied by the increase in the effective cost of CBT funding since August MPC. While this would not affect money market rates, it may still be taken as a positive signal by the market, though it is believed that this would be short-lived. Overall, it is fairly unlikely that CBT will start hiking rates at the September MPC combined with the Fed delaying normalization of its monetary policy. 

"We maintain our negative bias for TRY and recommend being long USDTRY through a 3m 1x2 call spread, with strikes at ATMF and 3.35", says Barclays.

 Elsewhere, Hungary, Czech and Israel is expected to remain on hold. The NBH announced the end of the cut cycle two months ago, and even though inflation has dropped and growth has slowed, it is too soon to consider further cuts. In Israel, BoI appears to be less likely to cut than before, while it will continue maintain its preference for weaker ILS. Finally, in Czech, CNB is expected to keep its policy rate on hold at 0.05% and its one-sided exchange rate peg at EURCZK at 27.